EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 4A.3, Problem 1MQ
To determine
The reason which shows that the choices along the certainty line suggest that there is no risk is to be ascertained.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
#3. Hannah gets 50 utils from visiting her family for Thanksgiving. But there is a 1% chance that she will get
the coronavirus from them. If she gets the coronavirus, her utility is -6000 utils. Her total utility would be
-5950 (i.e. 50 – 6000). She gets 0 utils from staying healthy (total utility = 50 + 0 = 50). If Hannah doesn't
visit her family for Thanksgiving, then she gets -25 utils from eating turkey cold cuts alone in front of the
TV. In that case, there is no risk of getting sick. What will Hannah do?
a. Visit her family for Thanksgiving
b. Not visit her family for Thanksgiving
c. Visit her family if she is risk-loving, not visit if she is risk-averse
d. Visit her family if she is risk-averse, not visit if she is risk-loving
#3. Hannah gets 50 utils from visiting her family for Thanksgiving. But there is a 1% chance that she will get the coronavirus from them. If she gets the coronavirus, her utility is -6000 utils. Her total utility would be -5950 (i.e. 50 – 6000). She gets 0 utils from staying healthy (total utility = 50 + 0 = 50). If Hannah doesn't visit her family for Thanksgiving, then she gets -25 utils from eating turkey cold cuts alone in front of the TV. In that case, there is no risk of getting sick. What will Hannah do?
In the field of financial management, it has been observed that there is a trade-off between the rate of return that one earns on investments and the amount of risk that one must bear to earn that return.
a) Draw a set of indifference curves between risk and return for a person that is risk-averse (a person that does not like risk).
Chapter 4A Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Knowledge Booster
Similar questions
- Now, imagine that Port Chester decides to crack down on motorists who park illegally by increasing the number of officers issuing parking tickets (thus, raising the probability of a ticket). If the cost of a ticket is $100, and the opportunity cost for the average driver of searching for parking is $12, which of the following probabilities would make the average person stop parking illegally? Assume that people will not park illegally if the expected value of doing so is negative. Check all that apply.arrow_forward#2. Hannah gets 50 utils from visiting her family for Thanksgiving. But there is a 1% chance that she will get the coronavirus from them. If she gets the coronavirus, her utility is -6000 utils. Her total utility would be -5950 (i.e. 50 – 6000). She gets 0 utils from staying healthy (total utility = 50 + 0 = 50). What is her expected utility? a. 50 utils b. -6 utils c. -10 utils d. -5999.5 utils e. -6000 utils f. None of these #3. Hannah gets 50 utils from visiting her family for Thanksgiving. But there is a 1% chance that she will get the coronavirus from them. If she gets the coronavirus, her utility is -6000 utils. Her total utility would be -5950 (i.e. 50 – 6000). She gets 0 utils from staying healthy (total utility = 50 + 0 = 50). If Hannah doesn't visit her family for Thanksgiving, then she gets -25 utils from eating turkey cold cuts alone in front of the TV. In that case, there is no risk of getting sick. What will Hannah do? a. Visit her family for Thanksgiving b. Not visit her…arrow_forward12. A consumer who conforms to the von Neumann-Morgenstern axioms is faced with four situations A, B, C, and D. She prefers A to B, B to C, and C to D. Experimentation reveals that the consumer is indifferent between B and a lottery ticket with probabilities of 0.4 and 0.6 for A and D respectively, and that she is indifferent between C and a lottery ticket with probabilities of 0.2 and 0.8 for B and D respectively. Construct a set of von Neumann- Morgenstern utility numbers for the four situations.arrow_forward
- Suppose Jessica has two choices: receive $12000 and 30 utils or take a gamble that has a 55% chance of a $20000 and 45 utils, and a 45% chance of a $0 payoff and zero utility. Assuming Jessica is a utility maximizer, what will she likely choose? a) Jessica will not take the gamble b) Jessica will take the gamble c) It cannot be determined d) Jessica is indifferentarrow_forward4. An individual's Bernoulli utility function is u(w) = Vw, and the individual has initial wealth 100. The individual might develop a health problem, which would reduce his or her wealth to 0. The individual might be "healthy" or "unhealthy." A healthy person develops the health problem with probability qL = 0.3, while an unhealthy person develops the health problem with probability qH = 0.7. The probability that the individual in question is healthy is 1/2. An individual knows whether he or she is healthy, but an insurer does not. Without insurance, a healthy person's wealth is 100 with probability 0.7 and 0 with probability 0.3. Without insurance, an unhealthy person's wealth is 100 with probability 0.3 and 0 with probability 0.7. Insurers only offer "full insurance." That is, if the adverse event occurs, they will pay back 100, restoring the individual's full wealth. Insurers set a price for this policy that is "actuarially fair." Insurance company makes no money on average.…arrow_forward1. Now, imagine that Port Chester decides to crack down on motorists who park illegally by increasing the number of officers issuing parking tickets (thus, raising the probability of a ticket). If the cost of a ticket is $100, and the opportunity cost for the average driver of searching for parking is $12, which of the following probabilities would make the average person stop parking illegally? Assume that people will not park illegally if the expected value of doing so is negative. Check all that apply. A. 9% B. 18% C. 17% D. 10% 2. Alternatively, the city could hold the number of officers constant and discourage parking violations by raising the fine for illegal parking. Suppose the average probability of getting caught for parking illegally is currently 10% citywide, and the average opportunity cost of parking is, again, $12. The fine that would make the average person indifferent between searching for parking and parking illegally is ____ , assuming that people will not…arrow_forward
- Suppose that an individual is just willing to accept a gamble to win or lose $1000 if the probability ofwinning is 0.6. Suppose that the utility gained if the individual wins is 100 utils. How much utility does one lose if one loses the gamble?arrow_forward1. Mr. Smith can cause an accident, which entails a monetary loss of $1000 to Ms. Adams. The likelihood of the accident depends on the precaution decisions by both individuals. Specifically, each individual can choose either "low" or "high" precaution, with the low precaution requiring no cost and the high precaution requiring the effort cost of $200 to the individual who chooses the high precaution. The following table describes the probability of an accident for each combination of the precaution choices by the two individuals. Adams chooses low precaution Adams chooses high precaution Smith chooses low precaution Smith chooses high precaution 0.8 0.5 0.7 0.1 1) What is the socially efficient outcome? For each of the following tort rules, (i) construct a table describing the individuals' payoffs under different precaution pairs and (ii) find the equilibrium precaution choices by the individuals. 2) a) No liability b) Strict liability (with full compensation) c) Negligence rule (with…arrow_forwardDescribe and use techniques that apply to decision making under uncertainty.arrow_forward
- Suppose a person chooses to play a gamble that is free to play. In this gamble, they have a 10% chance of $100.00, and a 90% chance of nothing. Their utility function is represented in the following equation: U=W 1/2 where W is equal to the amount of "winnings" (or the income). Suppose now Brown Insurance Company offers the person the option of purchasing insurance to insure they will win the $100. What is the minimum amount Brown Insurance would charge you to insure your win? 0.90 O. 99 01 O 10arrow_forwardQUESTION Sahar is analyzing the probability to open her own beauty salon. If she chooses to operate her own salon she would have to pay Rs. 70,000 p.m as rent and staff that would cost her Rs. 30,000 p.m and is expected to earn Rs. 150,000 p.m. While if she continues working as the head makeup artist in one of renowned salons of Karachi she would earn 120,000. Analyze the information above and find explicit and implicit cost?arrow_forward1 Consider an individual for whom utility is U = ln(I) There are two states of the world (G,B): Outcome G = 2000 with probability .4 Outcome B = 1000 with probability .6 W1 = 2000 L = 1000 π = .6 Option = invest $50 to lower π to .2 An insurance company is willing to offer a contract in which the individual pays a premium and gets full compensation for the loss (1000) in the bad state. a) With no insurance but the option of investing the $50, what is the utility of the individual? b) What is the first-best outcome for utility of the individual, insurance premium, and profits of the insurance company?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education